Norwegian's results are more evidence that the cruise industry is booming despite the downturn in the up-and-coming China market. By using language like "the stars aligned," however, executives sound like they're trying to lower expectations that the good luck will stick around.
In a quarter where lots of things went right for Norwegian Cruise Line Holdings, one part of the business was a standout: Cuba cruises.
The cruise operator started sailing to the island in March and had 11 voyages that included Havana during the three-month stretch that ended June 30.
“In terms of benefitting the quarter, no new destination has had quite the impact of Cuba,” president and CEO Frank Del Rio said during a call with analysts Tuesday. “Our voyages to Havana have been a home run.”
The company owns three brands — Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises — and all have visited the island.
Cruises on Norwegian Sky, which started sailing regular four-night itineraries to the island in May, have fetched much higher prices than the Bahamas itineraries the ship sailed previously, Del Rio said.
“And while early on, we were unsure as to whether these pricing premiums would endure, subsequent sailings…have continued to gain meaningful premiums which we now believe are sustainable, given the limited capacity to call on Cuban ports and the low likelihood of any near-term infrastructure improvements in Havana,” Del Rio said.
Norwegian has already announced plans to send a second ship to Havana, starting in May of 2018. And demand is “extraordinarily strong” for voyages on Oceania Cruises this year and next, Del Rio said. Next year, all three brands will again have ships that call on the once-forbidden island.
The details came in a better-than-expected quarter that saw revenues increase 13.3 percent to $1.3 billion year-over-year. Profits jumped from about $145 million in the second quarter of 2016 to more than $198 million this year.
Net yields, or net revenue per capacity day, increased 7.2 percent.
The company raised its outlook for the full year from adjusted earnings per share of $3.79 to $3.89 to a new range of $3.93 to $4.03.
“The stars aligned just right,” Del Rio said. “The booking environment was as strong as any we’ve witnessed in recent hisotry and was aided by a confident consumer that was willing to spend more than ever before on onboard activities to enhance their vacation experience.”
His comments echo those of Royal Caribbean Cruises CEO Richard Fain, who said last week that a previously good outlook had gotten even better.
Even China, which has been difficult for cruise operators due to tensions with South Korea, worked out better than anticipated for Norwegian. The company christened its first ship for the market, Norwegian Joy, in Shanghai at the end of June.
“Norwegian Joy’s launch came on the heels of travel restrictions to South Korea,” Del Rio said. “The resulting uncertainty surrounding itinerary deployment, coupled with our lack of operating history in China, caused us to perhaps be overly conservative and cautious in our last earnings call.”
He said pricing for future voyages seems to have stabilized and load factors for sailings over the past six weeks have been the highest ever for the brand.
“We look to build on this momentum with the hopeful return of sailings to South Korea at some point in the near future,” Del Rio said.
Still, ticket prices and onboard spending in China has been impacted by the travel restrictions. But Del Rio said the company is working on initiatives to generate more spending on the ship.
Asked by an analyst if the performance makes him feel more confident about 2019 — when Norwegian has said it plans to deploy a second ship to China — Del Rio didn’t get specific.
“I think it’s too early to talk about 2019,” he said. “Obviously, there have been some bumps in the road the last year or so. We’ve seen what others have done in terms of deployment in the future. We’re committed to being in this market, and like any market it will have ups and downs. Perhaps the Chinese market is a little more volatile than some of the other more mature ones, but we’re committed to being in China in the long term.”
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Photo credit: Norwegian Sky is shown in Havana on its first visit to Cuba. Norwegian Cruise Line